New Year’s Thoughts Part 2

I plan to be far more selective in my investments in 2016. I am still concerned about the overall markets, and I think a lot of the types of trades that worked for me in past years are not suited to what I expect to be a slower growth environment going forward.

For example, options and warrants have been big parts of my strategy in past years. I do not think short term options with the potential for complete loss of your investment, and even most warrants with several years until expiration, are a good risk/reward trade in a slow growth environment.

Swing trading growth and momentum stocks has also been a strategy I have used with success in the past. I do not think that will be as attractive a trade as it has been. I think many of the glamour stocks, with sky high valuations, may stay down for a long time instead of bouncing back up like they have before.

Small and micro-cap stocks have been an important part of my strategy, and while they will remain so I plan to be far more selective in the ones I am willing to bet on.

I have ventured into higher yielding dividend stocks at times, but I do not think that area will provide good risk/reward in a rising rate environment.

At other times I have added a few value stocks to my portfolio. However my confidence in that area has also declined as I think some of the changes in fundamentals which have led to depressed valuations in certain sectors are more structural and long term in nature rather than short term.

With my caution towards so many groups of stocks, that doesn’t seem to leave much left to invest in. However, there are a few areas I hope will still provide attractive opportunities.

I will always keep scouring the smaller cap space for what I believe to be those unappreciated compounders which are still available at attractive valuations.

I think some large caps are reasonably valued and may grow faster or for longer than is built into their valuations.

I think special situations and turnarounds could continue to work.

And if I do not find anything which meets my criteria, I will be happy to remain highly concentrated and/or sit on cash.